Sunday, 31 October 2010

Another big news item this week was Greece’s continued slide down the scale of Transparency International’s Perceptions of Corruption Index to the dubious accolade of ‘most corrupt EU country.’ I simply cannot summarise my impressions on this better than the inspired Twitter user @divinejudge1 [note by ‘lower corruption’ he means ‘lower transparency score]:

But that’s just perceptions. How about a stab at the facts? Well, there's no facts to be had about corruption but as readers may recall, I am particularly fond of a particular methodology for measuring the size of the shadow economy, which I also cite here.

According to Schneider (here), after a bumper year in 2009 when it grew by 0.3%, the Greek shadow economy is due to shrink by 3.2% this year, on the optimistic assumption that GDP is going to fall by 4%. Schneider’s estimate is that Greece’s shadow economy should reach 25.2% of GDP this year – still comfortably the largest in the EU in relative terms but also just barely over 2007 levels.

These figures underscore the point made by the IMF in its recent review of our adjustment programme: the resilience of the shadow economy is no insulation from the pain of recession or fiscal austerity. When the informal sector is large enough, it invariably comes to depend on the formal sector for demand. Fans of decoupling narratives always come to grief in this way and when they are governments the implications can be severe. I remember being subjected to this narrative by some of our leading lights back in 2008 – the same people that told me to stop worrying and learn to love the deficit.

Of course some academics will rush to explain that these ‘perceptions of corruption’ are just another bourgeois construct, or a way for the Americans to put us down and that the formality of economic activity is irrelevant.

To this I can only say: try to read through this without rolling it into a joint.

The IMF, we are often told, is a fiscal hawk whose single-minded, ideological pursuit of fiscal consolidation overrides all other concerns, including those of an indebted country’s citizens and even its creditors.

Why then is the IMF being so dove-ish these days?

First, the EU and the IMF tolerated a complete lack of progress in effective control of spending at the local government level which made it impossible for Greece to report against one of the explicit quantitative targets of our adjustment programme.

Then they tolerated the cover-up of our ‘final’ 2009 deficit figures until after the November elections, even though nearly everyone and their dog knows the figure is now estimated at around 15.1% to 15.5%.

Then they allowed us to delay the submission of our draft law on tax administration reform (draft here and rationale here), which they must know is desperately important.

Then they allowed us to set out a dubiously budgeted EUR2.3bn - 2.6bn plan to subsidise employment by offering incentives conditional on a stay in redundancies.

And for good measure, they now seem set to allow us to put off our capital gains tax hike until 2012 (here).

I can only assume that our creditors are incredibly invested in a Socialist victory in the 7 November municipal and prefectural elections, which they see as a make-or-break moment for our Government. Our creditors’ fears are well-founded. As I’ve explained here, while I hold most of them in deep contempt, the Socialists do offer our creditors their only hope of a stable and compliant government in Greece. Don’t forget, the Greek Right has foolishly tried to paint itself as the Greek version of Hungary’s Fidesz by claiming that signing up to the Memorandum was a choice made freely by the Prime Minister despite a host of alternatives (Russian money, anyone?) and that they would be able to bring Greece’s structural deficit down to 0% in two years (LOOOOOOOL).

Yorgo's thinly-veiled threat tο call a snap election unless his party does well in the upcoming elections has gone down very badly among Greeks, who resent being blackmailed. What they do not understand is that it is the IMF and our creditors that Yorgo is blackmailing. His signal says: 'cut me some slack, make me look good, or I swear I'll bring this whole motherf*cking place down with me.'

What our creditors and, worse, our Government, seem to forget is that the protest calendar is an even more important determinant of Greek bond prices than elections and that it is absolutely pulsing after 7 November. The 17 November celebrations are traditionally accompanied by an explosion of violence and last year’s spilled over into December due to the murder of a teenage protester.Then four people died in May, and this too will pale in comparison with what could happen this November.

It is amazingly short-sighted of the Government to kick the can further down the road – 7 November will simply never give it a mandate strong enough to survive another bout of austerity and the people will feel deeply betrayed. And although bad news before the 7th might dent its substantial lead in the polls, bad news between the 7th and the 17th could spark an urban war.

Dear readers, I must apologise for the radio silence. I have been extremely busy since my failed play-by-play of the Hellenic Observatory’s Fiscal Management Conference. Now that I finally have a bit of time, I am happy to announce that details of the event (including all presentations) are now online.

However, by far the best was an explosive presentation by one Dr Vassilis Manessiotis of the Bank of Greece. I have previously been unable to find his presentation but it is now available here.

This presentation was made even more timely by the recent revelation that the IMF has written to our Government expressing alarm about our failure to meet our tax revenue targets. Plainly, our frequent claim that missing the revenue target is not a problem as we can compensate by cutting expenditures even deeper than originally planned is pure madness. However, the IMF should have been more vocal when it mattered – this is after all a pre-election period and we all know what happens during Greek pre-election periods.

Anyway, back to our story.

Dr Manessiotis explained that, as with all developing nations (yup!), tax administration in Greece is tax policy. How we get the money in is at least as important as the nominal rate of tax or the choice of direct or indirect taxes (see here for a detailed academic discussion). He explained, for instance, that VAT took 20 years to introduce in Greece (late 60s to late 80s), as administrative failures forced policymakers to delay its introduction 4 times.

In the context of very poor tax administration and high rates of evasion or avoidance, Manessiotis said, the Laffer curve simply doesn’t work – lower rates of tax simply lead to lower revenues and that is that. The hard-to-catch populations are of course the self-employed and small businesses as I have discussed here.

An interesting aside – the European Commission compiles a database of financial statistics for the small business sectors of all member states, which can be found here. Both in 2007 and 2008, the micro-enterprise sector in Greece appears to have made losses every year once an imputed wage for their self-employed directors is taken into account. In fact they lost 23 cents for every 1 Euro of value they create. Yet despite this, their share of Greek GDP continues to rise. How is this possible? Come on. Guess.

Back to our story though: Dr. Manessiotis explained that Greece’s tax evasion and avoidance is mostly of a low level of sophistication, not the financial wizardry that one might find perpetrated in the City of London. It starts with simple failures to issue receipts and maintain accounts. Something which will no doubt be exacerbated by the European Commission’s recent proposals (endorsed with some changes by Parliament) to exempt micro-companies from publishing their accounts. At any rate, tax audits are perceived (correctly) to be very rare and any findings are only actioned after a substantial time lag – some years to be more precise. Overall, Greek officials believe that ca. 30-35% of all potential tax revenue is lost to avoidance and evasion. Academics have worked out that these serve to increase inequality and poverty, thus inflating our social transfers budget and creating incentives for further fiscal expansion.

Greece has 286 tax offices (listed here), an enormous per capita figure by OECD standards, created in the past two decades for clientelist reasons (see similar stories on regional investment and universities). In the 1980s, 1990s and after 2007, large numbers of civil servants were moved into tax offices from other parts of the civil service without the necessary skills or training. Manessiotis does not explain how this worked but happily I do know as there as some such civil servants in my own family, transferred in the 80s from the civil service to their local tax office – you see, the geographical dispersion of tax offices was a great parking system for civil servants wanting to work near their families.

The actual set-up of tax administration is an invitation to corruption – not only do tax officers have ‘unbelievable’ levels of discretion, they can only be disciplined by a committee of their own colleagues and the Greek Finance Minister must personally approve any transfer of a tax officer. The problem of corruption is acknowledged by the Inspector General of Public Administration and has deteriorated substantially in the past 10 years. It does not help that in Greece the quality of tax services by civil servants is extremely low; citizens are generally expected to know the law in minute detail and there is little to no support forthcoming when they inevitably do not. Thus they are entirely at the tax officer’s mercy in most cases.

Greece has no tax dispute resolution mechanism involving mediation – every contested case goes to the Tax Courts, which are currently facing a backlog of 150,000 cases worth a total of EUR30bn (ZOMFG). The average case takes 7-10 years to resolve. Taxpayers are technically required to pay 25% of the tax due in order to appeal in the first place, but the courts have the option of waiving this sum, which they exercise about 90% of the time (and, one is tempted to think, not without earning a bit of commission).

Finally, Greece has a long history of tax amnesties – 10 in the past 32 years, with the most recent taking place this year. A total of EUR17.5bn was written off in this manner between 2000-2008. Tax amnesties are by now built into the expectations of Greek taxpayers and their tax advisers (mostly notaries and accountants), encouraging a cavalier attitude to the law, which at any rate changes every month or so.

Greek Governments instroduced 104 major pieces of tax legislation between 1986-1995 alone plus a number of ‘emergency’ levies on businesses. As a result, the tax system is teeming with exceptions and ad-hoc provisions. The obvious implication is that tax information systems are rudimentary and non-integrated and in fact certain pieces of legislation have their own dedicated information systems that are impossible to reconcile with any other tax information. Amazingly, where tax systems have been computerised, the effect has been to simply digitise what was once a manual process – with no saving in time or effort at all and certainly no additional functionality. In fact the amount of paperwork has often increased as a result. Amazingly, tax officers cannot use what information systems they do have to consider a particular taxpayer’s tax history (no such functionality exists in the system), nor can they check their historical record of violations and/or errors. In many cases, taxpayers are required to submit their latest tax return themselves in order to fill in the gaps.

A law for the overhaul of tax administration was to be submitted in October but was sadly delayed ahead, one cannot help but thinking, of our crucial municipal and prefectural elections.

Overall, the cost of collecting taxes in Greece is 1.6% of the amount levied, twice what it is in Canada. In personal income tax, this ratio rises to 2.4%, which is 4 times the US level. This does not include the costs borne by citizens, who must collect all receipts on pain of losing half of their tax allowance.

The IMF knows all of this, and of course this knowledge cuts both ways, as per the Vayanos et al critique discussed here. One way of seeing all of this is to say that Greece has enormous potential that is being squandered by administrative failure – the Government/IMF line. If we could fix this, Greece’s public finances would be sustainable. Another way of seeing it, however, is that we simply do not have the time to overcome all of this massive failure while in the throes of a debt-fuelled death spiral. Greece has a poor record of institutional reform, which at any rate is a very tricky business.

Unless of course we suspend the electoral cycle, which I guess I would not be happy with.

Owsiak: change in public debt in Poland unrelated to GDP growth. This is meant to be Laffer-bashing. 75% of Polish state spending is non-discretionary, cannot be cut or re-allocated.

Options? Must review social model. What will be provided by the state? This must be resolved through a Swedish-type social pact. Tax must be reviewed, seen as an investment.

Sure Prof. I'll see tax as an investment when it finances investment. Right now it finances consumption - read your own slides.

Two conditions for social pact: One transparency. Who pays what, for what. And two: imrpoved management: how many civil servants?

Greece's problem also a problem for Poland. Society never knows what public finances really look like.

*****

Prof. Owsiak of the U. Cracow correctly notes an irrational approach to public finances, but says soaring budget deficits due to 'neoliberal' approach to tax as barrier to growth, tax competition by new member states, tolerance of tax avoidance.

Owsiak: time to concentrate on revenue side. Laffer curve does not work.

*****

Back from coffee break: FONDAFIP speaker comments that France is a public spending champion among the EU or OECD nation.

Reformed public finance in 2001, implemented in 2006, including a new 'peformance-centred' rationaly.

FR tries to deliver maximum spending forecasts, has a new comprehensive review cycle and a new 'multi-year planning law'.

*****

Q&A

On role of external auditors, independence of government audit office: there are provisions in the law and efforts to establish a system of internal audit in finmin plus a new directorate to deal with GAO auditing. Gosh sounds pointless.

On moral hazard and government incentives in a world of easy debt and EU money and how to not return to these: Big political obstacles and vague gestures. Tax admin needs to be more autonomous from politicians, departure from partisanship. Some posts are goldmines, people lobby and fight for these.

On bank of Greece monitoring and why no one listened: Question dismissed with shared snickers with Christodoulakis about how the BoG wants to make recommendations to everyone but never wants to reform itself, like all central banks. Answer the question man.

*****

Rapanos: Greek tax offices extremely numerous by oecd standards for clientelist reasons. Tax officers have enormous discretion and can only be transferred with the minister's personal approval. A dd to this frequent tax amnesties destroying credibility and huge backlog of 150,000 tax court cases pending, no dispute reoslution mechanism - a recipe for corruption.

*****

Greek budget has 14,000 items - 6,000 to 7,000 transfers between them annually, each requiring approval.

LOL
- but new law will ban transfers and give more power of control to parliament.

Still now explicit national fiscal rules and lack of commitment, no external auditors (expect hospitals and municipalities I think)

Accrual accounting only on the revenue side.

*****

Rapanos - too much opacity. None or rudimental budgeting in General Gov't despite huge amount of money. Parliament is a rubber-stamp mechanism. The executive has all power on fiscal policy.

Greece needs huge improvement to institution and ex-post auditing, not just on a legalistic basis (e.g. 'Is money spent according to law?' Is pointless. Is it spent correctly and as budgeted?)

Greek finmin has sent ms Drosou, hardly an operator. She rolls out the usual blurb and celebrates the new Organic Budget law requiring Greek ministries to have a CFO and take responsibility for their own budgets. Wow.

*****

FONDAFIP: EU "a common house in which we can survive difficult times"

*****

Objective is not to instruct one wayward member but to "learn from one another" - we're all bankrupt anyway!

*****

Prof. Featherstone touches on the CSR in the UK, remembers to moan about the cut to Higher Education budget.

*****

And we're off. Prof. Featherstone looks more like a Greek academic than I though - bit of a jowl, tweed, hideous yellow tie.

Prof. Bouvier can't make it but his wife will stand in. Great start to conference on sound management.

*****

Journos seem to have had a late night - taking their time getting in. The blog's favourite Economist hack isn't here yet either, but is meant to be attending.

The Greek sovereign debt crisis of 2010 has received world-wide attention and has elicited unprecedented action by the European Union and its member governments as well as by the IMF. Greece is now obliged to follow the terms of the 'Memorandum' agreed with the 'bail-out' loan it has received. Is Greek economic policy on track? What are its future prospects?

George Papaconstantinou was born in Athens in 1961. He is an economist, holding a PhD in economics from the LSE. Between 1988 and 1998 he worked as senior economist at the Organization for Economic Co-operation and Development (OECD). In 1998 he was appointed advisor to former P.M. Costas Simitis on Information Society issues and then served as a Special Secretary for the Information Society (2000-2002). In 2003, during the Greek Presidency of the EU, he coordinated the "Lisbon Strategy" for economic and social reforms. Between 2004 and 2007, he served as economic advisor to PASOK's president George Papandreou. Between 2000 and 2007, he also taught economics at the Athens University of Economics and Business. In 2007, he was elected member of the Greek National Parliament, and was appointed PASOK's press spokesman in 2008. In the 2009 elections for the European Parliament, he headed PASOK's list of candidates and was elected MEP. In October 2009 he was appointed Finance Minister in the government formed after the national elections. He is married to writer Jacoline Vinke and has two sons.

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The phonic spelling disasters continue to pile up in Greece's leading newspapers. However, it must be said that the Communists' paper, The Radical, has a very good reason not to be able to spell the name of the Vampire Squid. I'd be dissapointed if they could.

But is it possible that the leading centre-right paper, Kathimerini, can possibly not know the name of the bank whose collapse broke the financial world? Read it and weep my friends: the tale of LehmaBrothers, mentioned not once but thrice in one article. Perhaps the missing letters are meant to convey an uber-relaxed air of familiarity, the way people refer to SocGen instead of Société Générale. I'll give the author the benefit of the doubt, as he seems to be able to spell in other articles. Or maybe Newstime has better copy-editors.

Sunday, 17 October 2010

The last few months have been very hard for Greece, with not only the sustainability of our public finances but also the moral fibre of our people coming into question. The response of many Greeks to this has been a tribal one: ‘so-and-so can’t call us corrupt/insolvent/a failed state! What’s so great about them anyway? We all know about their dirty little secrets!’ This kind of response is typical not only of the great unwashed but also of many MUPPETS among our political elite (such as this one and this one) and of course a number of economists for hire.

I call this type of analysis YO’MAMA-nomics. In a YO’MAMA-nomic argument, the issue quickly becomes not how badly Greece needs to up its game but how we can avoid losing face right now. Note that most of the accusations leveled at Greece regarding corruption or the parlous state of our public finances were things that one could have heard mentioned casually around dinner tables around the country for years and years prior to the IMF bailout. Indeed, one of our best-ever comedy series established the caricature that everyone is now so familiar with all of 21 years ago.

I have now found my favourite example of YO’MAMA-nomics and I’d like to share it with the world. It comes, as you might imagine, from a Greek academic with substantial activist credentials. The treatise in question can be found in an old paper by one Dr. Peter Bratsis, formerly of LSE and now of Salford University, that perfectly encapsulates the YO’MAMA-nomic mindset. Remember, this is not the rantings of a tro(ma)ktiko reader, but rather the abundantly referenced thoughts of a professional social scientist:

“The point of departure for the present paper is to reverse the gaze, to not look to Greece in order to discover the source of its ‘corruption’ problem. Rather, this paper looks from Greece outwards in order to uncover why it is that people judge Greece to be corrupt.The paradoxical position of this paper is that the sources of the problem of corruption in Greece can not be found in Greece, they are to be found in the seemingly less corrupt states of the West (particularly the United States), in those concepts, rituals and myths that enable countless instances of private regarding within the public to be judged normal and acceptable and which shape our perceptions of Greek political life as being pathological. Although I do not doubt the presence of clientelism or bribery in Greece, I do question why these things (and not many others) should be considered a corruption. For example, why is it that clientelism should be a corruption but not corporatism or interest group politics? The spontaneous understandings and categorizations that we hold in our heads and which lead us to characterize some phenomenon as a corruption and others as not are what this paper seeks to uncover.”

Did you get that? Later in the same paper, he gives an excellent example:

“The tendency to give ‘envelopes’ [ed: a reference to bribes in the health sector] in order to receive preferential or attentive service is well known. From the typical western perspective, such endemic ‘bribery’ is sure to be labelled an example of corruption and this form of allocating medical care is likely to be judged undesirable. Indeed, I suspect that most Greeks would consider it a corruption and something that should be done away with. However, if we ignore the informal nature of the exchange itself and focus on the larger questions of how egalitarian the distribution of medical care is and how much money (bribe included) this care costs compared to other systems – we may very well judge the Greek medical system to be superior to many that are perceived as ‘uncorrupt’. Is an informal exchange between doctor and patient really more troubling than the power that the American Medical Association or the pharmaceutical industry have within the U.S. legislature? It could be, but the point is that an argument has to be made, the labelling of something as corrupt cannot trump real political discussion and analysis. What if we formalized ‘envelopes’ and called them co-payments? They would then likely fall under the category of not being corrupt, but would the Greek medical system be any better than it was before?”

You read correctly. The intuition that there is something deeply wrong with one’s doctor requiring an additional payment behind closed doors in order to do their job is irrelevant. Corruption is a Western gimmick, another word that the Americans use to put ‘us’ down. Bribery is the Greek way and who is to say it’s an inferior way? At any rate, what is desirable and what is not is a matter for ‘political discussion and analysis’ – i.e. for the good Doctor and his socialist circle-jerking friends to decide.

At any rate, the suggestion that people in ‘the West’ do not see most forms of corporate lobbying as corruption is naïve (whether one considers ‘the West’ in terms of its elites or in terms of the man on the street) and, one suspects, simply an assertion made to fit Bratsis’ narrative. More to the point, the contention that formalising bribery into a registered transaction would make no difference is so fantastically ignorant that it brings me to tears. The quickest rebuttal I can offer can be found here. I suspect the good Doctor would resent the suggestion that a price can be placed on public services, but I can’t win them all, can I?

A simple (economist’s) test that might help people gauge the relative toxicity of corruption in Greece vis-à-vis lobbying in the West would be the following: how easy is it to claim a piece of the action in each of the two processes? It ought to be the case that, the more rent-seeking the function of each group, the tougher the barriers to entry that incumbents will erect, and the higher the premiums that intermediaries will be able to charge. How hard is it for an ‘outsider’ to become a lobbyist in Washington or Brussels as opposed to a ‘fixer’ for corrupt civil servants or politicians in Greece? How expensive is it to hire each of these? How hard do Western politicians fight to ensure exclusive use of their lobbyist connections, and how hard do Greek politicians fight to maintain exclusive access to clientelist networks or shelter their corrupt henchmen? How much do these politicians ask in return for their services?

The first test is simple. There is an obvious entry point to the lobbying industry. You can apply and be interviewed. There is none in the ‘fixer’ industry in Greece. You have to rely on unique personal connections, usually built over many years of putting up posters for a political party, manning the phones at a pre-election call centre, carrying somebody’s briefcase or performing sexual favours (you laugh? Greek readers may remember this. That’s a former secretary-general of the Greek Ministry of Culture and his secretary).

On very rare occasions, 'social partners' will put out an ad when they run out of lackeys who understand statistics or speak English, but even then they do so under cover of anonymity. All of the above suggests to me that ‘fixers’ are much more rent-seeking than lobbyists.

As for how expensive it is to hire a corrupt political fixer, the notorious case of Siemens gives us an appropriate benchmark – having paid a very substantial amount in bribes to Greek government officials from 1999 to 2006. According to insider accounts, the typical Siemens bribe would be 5-6% of contract value but could rise to 40% in especially corrupt countries.

Compare this to lobbying firms in the US, which earned a very modest $3.47bn in 2009, or 0.025% of US GDP.

The champion lobbyists of the health sector paid only 0.046% of the sector’s GVA in lobbying. The notorious financial services sector paid only 0.015% of its GVA. The communication and electronics sector, arguably the most suitable comparator to Siemens, spent 0.024% of its GVA on lobbying (GVA of US industries available here).

Fair enough, most of this business would have gone on without lobbying, as opposed to Siemens’ dirty dealings, but while the return on Siemens’ corruption spending was between 150% and 2,000% (assuming the figures quoted above refer to Siemens’ profit from the deal, not the amount quoted to the client), the return on individual firms’ lobbying spend in the States appears to be much higher, with figures of 600% to 2,000% and even a much as 22,000% mooted in some cases. Or even higher, if you’re willing to go out on a limb. In fact, management almost certainly foregoes more than the extra cost when using bribes as opposed to lobbying: first there is the risk of substantial penalties, and then there is the fact that, whereas the future returns from lobbying are partly factored into share prices, which makes money for clever managers, the future returns from bribery can’t be.

Clearly, it is much cheaper to promote one’s interests through western-style lobbying than Greek-style corruption, because bribery is a much more rent-seeking industry than lobbying. The rest of my economic test I simply don’t have the data for, for obvious reasons. But I suspect it would yield the same results. Corruption can subvert institutions in a way that no amount of lobbying can do. We know this because people are willing to pay the kind of money to corrupt officials that they wouldn’t dream of paying to lobbyists.

One question that keeps coming up regarding the sad saga of Greece's public finances is - how did we Greeks put up with this stuff? How did we let it come to this? Did we not see? What the hell's wrong with us?

Foreigners used to see the Greek nation at its best - my fellow exiles studying or working alongside them, or polished fellows in hotels, or carefree hipsters in beaches and clubs. They never saw the darker side, the nation that, in the words of Terry Pratchett and Neil Gaiman, has not so much fallen as sauntered vaguely downwards. Faced with it as they are now, some retreat into stereotypes of a siesta nation. There is of course more to this, and it's much darker.

WARNING: THIS IS GOING TO BE A LONG POST

So why not try a crash course? I got one myself today while casually browsing the chief Troktiko clone, Tro-ma-ktiko. You may have noticed I keep quoting this; in fact I get it drip-fed to me via RSS on my phone. Why? Because it gives me a constant insight into the darker, more primitive thoughts of my people - the nation's limbic system if you will.

After a short build-up, the following post went up today, discussing the father of our current PM, the late PM Andreas Papandreou (he's not Papandreou Sr., btw. His father, George Papandreou, also a PM in his time, is a better candidate. You counted right. That's three PMs in three generations). The author of the post is the anonymous admin account, tro(ma)ktikos, which could be any of a number of full-time equivalent staff.

"Something that every Greek should read. Anyone who wishes to do so can look it up and check whether or not it is true [ed: thanks for nothing]. According to our sources, all that you are about to read is true."

"We've often heard it said that "we ate bread" [ed: finally achieved a tolerable standard of living] under Andreas, that he gave money away and the people could finally afford to eat, etc. But is that the case? Let us examine."

"For starters, just so that we all know what we're talking about we must examine his family tree: Zygmund Mineyko: A Jewish Pole engineer who designs armaments for the Turks, so that they can fight those Greeks who fought for freedom."

[ed: the Mineyko family history can be found here. Z.M. was born 1840 and was in fact on our side - a service for which he was decorated by the Greek state.]

"Zygmund has a daughter, Zofia. Zofia marries George Papandreou from Achaia, and together they have Andreas Papandreou. Andreas leaves the country to study in America in 1941 and marries the American Jew Margaret Chant in 1951. Margaret Chant's father was Douglas Chant who served as president of the Jehovah's witnesses of America."

[ed. this is not true. Other websites erroneously name Douglas Chant as Margaret's grandfather, and a person of rank among the Jehovah's Witnesses, not a president. The tale apparently grows in the telling]

"Andreas and Margaret have, among other children, George Papandreou, today's popularly elected PM. Now, in 1974, as the document below proves, Andreas borrowed $100,000,000 from the Rockefellers' bank, Chase Manhattan, to set up PASOK" [ed: the Greek Socialist Party]

[ed: This strikes me as excessive by 1974 standards. Compare this to the $67m spent by all candidates put together in the US presidential bids for 1976. Presumably that election was worth more of Chase's money than ours in 1981?].

"Common sense suggests that when a banker gives away $1, he expects a profit of $1,000. So Andreas was elected PM [ed: in 1981], he shut down all major businesses in Greece (Izola, Pitsos, Elinda etc. etc.) by doubling wages and national insurance contributions without reducing taxation of businesses to balance this out. The logical outcome of this was for Greece to no longer produce or export anything, shutting off the flow of state revenue (which never opened again). Moreover, he increased the number of civil servants, who unlike the now defunct industries produce no state revenues, by 1,000% and furthermore increased bureaucracy, making it impossible to do business in Greece."

[ed: Don't tell Pitsos they're no longer in business. They're very busy making appliances as we speak. Izola and Elinda have, since merging in 1977, been the same company. That's four years before A-Pap was first elected PM. They both went out of business together in 1991. Moreover, the number of civil servants went up by 57% between 1981 and 1996 - too much but not ten-fold].

"The result, due to a lack of revenue and excess costs, was for Greece to resort to BORROWING. It follows that he [ed: Papandreou] would borrow from 'familiar' banks... in order to return the favour. After 1981, Greece reaches the point, for the first time, of consuming more than it produces."

[ed. Although the criticism of A-PAP's policies is mostly correct, it should be noted that Greece has run a trade deficit every single year since at least the 1960s]

"The national debt soars from 8bn under that other father of the nation, Karamanlis [ed: that's Karamanlis Sr, the uncle of our last PM.] to 100bn. This puts Greece at the mercy of the banks (we don't need to say who owns those, anyone with an ounce of grey matter knows this)."

[Ed: The rant goes on forever, so I'll cut it short here.]

Now for the money shot. The author of this rant attaches the 'document' outlining the understanding between Chase Manhattan and Andreas Papandreou. An official-looking piece, signed by Papandreou himself on US OMC - headed paper, linking the Chase Manhattan loan to almost every Greek national security issue imaginable. This document was originally hosted on imageshack (here), not a well known place for US military intelligence to turn up. But let's give this person the benefit of the doubt.

Now please read this document carefully and see if you can guess what's wrong with it.

Now I don't personally know any evil, conspiring Jewish bankers, but I would imagine they have to at least be relatively fluent in English to keep their jobs. And they would never be able to write "Wallstreet" unless they had a gun to their heads. Not to mention putting the dollar sign at the end of the amount. I do wonder whether the hoaxer has actually finished school.

Nor would they make so many grammatical errors that just happen to read as though they came from a literal translation from the original Greek. And of course, conspiring Jewish bankers would probably have conspiring Jewish lawyers who would advise them against all of these incredibly vague phrasings (such as 'will be fixed'), as they would allow any counterparty to wriggle out of their obligation without any problems.

Astute Jewish conspirators might also have pointed out that the only purpose of a contract is to uphold one counterparty's rights in court, should the other fail to live up to their obligations. This is a document that could never possibly be submitted to a court because such publicity would inflict untold damage on both counterparties. If such a deal did exist, I suspect that Chase would deal with a breach of contract via assassination (see? I am as Greek as anyone else).

Alternatively, this document could not have been drawn up by a Harvard-educated economist like A-PAP. By now you probably get my gist. This is a hoax, and a bad one at that, created by a poorly educated Greek LOLperson between frantic porn sessions. The editors of Tro(ma)ktiko cannot possibly have failed to notice this.Yet they publish this, and the disturbing rant cited above, and urge the reader to look into the authenticity of the document, in the obvious hope that no one will bother. Already countless clones of this article have sprung up in the Greek blogosphere, and will soon find their way into the faulty collective memory of my people.

Some people might be a little thrown by the authentically 'aged' look of the document, which the authors are clearly counting on. But in fact all of the logos and signatures included here are readily available online. As for making Courier script look like a genuinely typewritten document, that's a piece of cake for anyone with a scanner. For instance, I prepared the following document within a few seconds:

Readers will know I'm no big fan of G-PAP. Yes, he's got a very bad situation to deal with, but he's dug his own hole in most respects. And at any rate, I think having yet another Papandreou at the helm is a complete affront to democracy in my country. I'll be happy to see the back of him. I also do not think much of his late father - whom many left-leaning Greeks revere almost like they would a saint, even though in reality I would liken him to a Gaddaffi-like figure, minus the guns, planes and oil. I don't know that he took money from anyone in order to set up PASOK; if he did, I wouldn't be too shocked. But this particular story is 100% fabricated. In fact, I'll go out on a limb and say that I believe the story to be fabricated by the editors of tro(ma)ktiko themselves. What worries me is that the authors know that it will chime so well with some Greek people's anti-semitic, conspiracy theorist instincts that no one will want to check.

One last note. How many people, you may ask, have read this drivel? On average, 6,000 people are reading tro(ma)ktiko at any given moment. If Troktiko is any indication, we're probably talking 400,000 readers per day. You can check it out here.

Tuesday, 12 October 2010

An enormous amount of Greek debt is due to mature in early 2012. On top of the Memorandum money, we will need to tap bond markets for EUR13.1bn, which they almost certainly will not want to give us at anything like reasonable terms. Then it gets even worse.

So what to do? Reschedule our payments to the IMF and the EU, the option currently being discussed. I am not surprised our FinMin is happy to look into this option. I find it amazing though that even the FT's Alphaville doesn't have the balls to call this by its name - DEFAULT. Happily the Germans realise what they are dealing with and have called such discussions 'premature', which is code for 'f*in' bastards!'

I can only chuckle to myself bitterly. This is yet another thing we said we'd never do, and have ended up doing. Can anyone really believe anything we say anymore? Oh yes they do. They believe our PM when he says we're corrupt to our rotten socialist bones.(Though which PM that was became a heated issue for a while - turned out it was our current PM)

Of course our creditors are loving this because it means we get to default on the EU/IMF debt before we default on theirs. This is not something we could have done under the original Memorandum terms because the IMF was a super-senior creditor. They would have had to be paid before anyone else does, unless of course if they were to volunteer to extend their payment deadlines. Of course, as the IMF is not beholden to any taxpayers it can afford to take a small haircut. I expect it will take a bigger one eventually.

Incidentally, what happened to Premier Wen soaking up our bonds? What's that? The Chinese don't like losing money any more than any other people? Who would have thought that?

Monday, 11 October 2010

LOLGreece offers our heartfelt congratulations to the three new Economic Sciences Nobel Laureates - who, it should be noted, received their prize for modelling the implications of search frictions on markets, most notably the labour market. In short, for trying to explain why I don't work in Greece.

The other day the economic historian and frequent reader, Alex, pointed out in his blog that Greece will never achieve any sort of sustainable fiscal adjustment unless it can tackle the informal economy. Another regular reader, Andreas, pointed out that increasing our tax take by 3.3% of GDP against the proposed 13.7% and trying to make up the shortfall by cutting spending a little bit further was madness.

Clearly, it’s past time I started talking about tax revenue. Let me put my cards on the table: I believe in a small state in terms both fiscal and regulatory. I’d be happy for the country to default and for much of the public spending in Greece (not to mention the UK, where I pay my taxes) to just wither on the vine.

However, in our present state Greece isn’t going to be allowed to default until European banks can recapitalise.This means we need to control the deficit just well enough to convince the markets we can run a sustainable state so that we can have our sovereignty back - and then default. In the meantime, Greece also has to keep up much of the spending we currently do or risk serious social unrest, which will send us back to square one. Only if we can pull all of this off over the next four years do we have a serious chance of ever being a serious country again.

To do all of that we need to get our hands now on what mad Keynesian attack dogs call the missing billions. So let’s prepare an amateur’s estimate of our tax ‘lag’ – the extra tax a country identical to Greece would collect with reasonable levels of success raising funds. It would give the layman an idea of where to look for those elusive extra funds.

This takes a bit of triangulation. First, you need the implied tax rates on capital, labour and consumption (the ratio of transactions to tax rendered). You can get all of these from Eurostat. You can’t get the capital figures after 2006, but that’s fine because 2006 is the last year the Greek economy performed decently; at least no one can accuse you of a negative bias. Now the big question is which country you want to use a comparator. Ideally you would want a country of similar size and a similar tax system but finding genuinely good comparators is very difficult. If you must try, Portugal compares reasonably well. But I’ve gone for the Eurozone as a whole, which makes the data much less volatile.

Then you need the volume of transactions. You can get consumption from ELSTAT (as it is now known), and capital and labour compensation from EUKLEMS.

Here’s what comes out if you try that: we could have raised EUR22.4bn more in 2006 – well before our tax collection mechanisms collapsed. That’s 10.8% of GDP. Wow! Imagine if we could have got our hands on that kind of money. Why, we’d... have spent it on bullshit like all the other untold billions. But let’s suspend our cynicism and consider Alex’s question: whether this kind of adjustment could put Greece back on the path to fiscal sustainability (and thus buy us our sovereignty back).

The IMF’s long-term projections suggest that it is, just barely, enough, if your definition of sustainability is getting debt down to 60% of GDP by 2060. Frankly I think the markets would turn fractal cartwheels of delight if this prospect were to come into sight for Greece. Anyway, the IMF’s figures say that, as of 2009, Greece required almost exactly that kind of adjustment to get on the ‘60 by 60’ trajectory.

So it sounds like a good plan. Where do we get the missing 22.4bn? Well, just under half of that needs to come from taxing businesses (or capital), which basically get away with paying half what they would elsewhere in the Eurozone. Another 8bn or so needs to come from consumption, as in VAT. Presumably the problem is not the rate or scope of VAT – it’s the fact that so few businesses turn it over to the taxman. Only one seventh of our missing funds can realistically come from taxing labour – our employees don’t really make that much and they can’t hide what they make. Tax avoidance by the self-employed would come under capital, btw.

Apparently some 4bn of the capital and labour tax lag is down to individuals avoiding tax. That’s a good third of the total.

Stay tuned for a series of posts on how to increase the tax take from capital and consumption. If you can think of something, please leave a comment and I'll dig up some figures.

Saturday, 9 October 2010

Remember our Eurostat-approved deficit figures? The ones that estimated the deficit at 13.6%, but potentially up to 14.1%? Next stop, a random number larger than 14.1%. How much larger? Well one source says over 15%. Your bets please!

It is common knowledge that every Greek man lives with his parents until well into his thirties, in a mutually frustrating melange that is the result of a rubbish labour market and a benign but slightly misguided culture of parenting.

If, like me, you suspected that this was a bit of a stereotype, you were wrong. Eurostat has just published its figures for young people staying with their parents and boy they are bad. Apparently, 56% of 25-34 yr old men in Greece live with mum and dad - the worst figure in Europe save Bulgaria. You know it can't just be culture because, among Cypriot men in the same age group, "only" 42% live with their folks. The figures for socialist paradise states (always a useful comparison) are all under 8%.

Greek women aren't doing much better either - 36% of 25-35 yr olds live with their folks, a percentage topped only by Slovenia and Slovakia.

So far, so Troktiko - but turn over one page and you'll find the figures about people living in 'consensual unions', i.e. people shacked up together, whether they be married or not. Here young Greek men score the lowest in Europe - a mere 20%. The Scandinavians, on the other hand, are among the most likely people to be living with a partner. Again, it can't be all down to culture: apparently Greek immigrants to the States are significantly more likely to cohabit than those from other ethnic backgrounds.

The plot thickens. Why do Greek men tend to live with their folks rather than with partners and spouses? It can't be that we're not that into nookie, because the evidence says we are - more so than any nation in this study except (of course) the Brazilians, who are not, however as versatile in terms of the variety of sexual acts performed. In fact, you can probably quit reading now and just look at the Durex-sponsored global study about sex. I know you want to.

One issue may well be money. Not only is marriage a very expensive proposition but cohabitation was not acknowledged by law until not too long ago. More importantly, there is evidence that young people's tendency for cohabitation increases a little as young people's job insecurity rises but decreases a lot more as their parents' job insecurity rises. Because employment law tends to reduce older workers' job insecurity at the expense of increasing young people's job insecurity one of its effects is to reduce young people's emancipation rates. Could it be that Greece is paying yet another premium for having the worlds' 147st most efficient labour market ?

Sunday, 3 October 2010

Those Greeks currently cheering about the prospect of China buying Greek bonds, and who cite this as evidence that we are not going to default after all, should remember that China now has its own credit rating agency, Dagong Global Credit Rating.

Dagong issued its opening salvo of credit ratings to great consternation a few weeks ago, and these are summarised here. Scroll to page 11 and you will find that Dagong actually thinks Greece's debt is rated too leniently by the Western credit rating agencies which our FinMin so reviles. The Chinese actually assign us the same credit rating as Nigeria... in which they also have substantial investments.

If one considers inflation as a means of default, I would argue that the ratings are not too bad actually - the Big Three are a little bit too sensitive about downgrading major economies, and took months to catch up with the market in the case of Greece. Moody's in particular are so far behind they are laughable.

Indeed, Dagong does consider default by inflation to be default:

"Regarding the partial default, it is worthwhile to take note of the hidden default via malicious devaluation of domestic currency. In extreme cases, a government might choose to let domestic currency depreciate for part relief of its debt burdens. When it happens, if the contract does not have any arrangement to offset currency value fluctuations, such as adopting floating interest rates or indexed interest rates, and the government does not announce any measures to preserve the value of the bond, even if the government repays the debt in full and on time, we still consider the bond to be in default."

At any rate, the string of deals the Chinese signed with Yorgo is cleverly put together and even more impressively Premier Wen Jiabao's speech to our Parliament was 100% spot on. He was probably briefed to tell our parliamentarians something about ancient Greece, produce a quote, say that China will continue to participate in our bond offerings (i.e. bid for some of our bonds if and when we next go to the markets), and then leave the Greeks to pat each other on the back and go talk business with whoever's in charge of privatisations. I bet even the officials who prepared this speech cannot believe how well they had our press figured out.

Speaking of the Chinese, Greece-watchers may not be aware of the horse-trading we have done with China over the years. For instance, did you know that Greece does not acknowledge Taiwan as an independent state, but only as a province of China? No? Neither do 99.9% of Greeks. Sure, there may be historical and legal reasons for taking this approach (more here and here), but I note that our position is much stronger than that of other nations who merely 'take note of' or 'acknowledge' the Chinese position on this, or who 'do not support' rather than 'oppose' Taiwan's arguments on independence.

Apparently all of the above comes as no surprise to people familiar with this long-running dispute but I'm new to this and I'm still holding my jaw up. Our statesmen may want to remember this the next time we bleat to the global community about how credit rating agencies and the FT are playing with our national sovereignty for money, or when we complain about people not siding with us in the Macedonian naming dispute due to geopolitical or economic concerns: we're happy to do the same to others.This is just the way the game is played - we should learn to live with it.

UPDATE: Turns out the Chinese have given us one further vote of confidence. 3.7% fewer of them visited Greece in 2009.

The incredibly annoying and false rumour about Russia offering us a bailout back in May just won't die.

It has resurfaced in one of the Troktiko clones, in a blog interview with Adonis Georgiades, spokesman for Greece's National Orthodox Alert (LAOS) party, who is also running for Prefect of Attica in the upcoming elections.

I wonder if our 'orthodox axis' zealots actually read anything except their own conspiracy theory circle-jerk. And why people like that see hidden motives behind everything but are happy to believe Putin would bail us out out of the kindness of his heart, with no strings attached.

Friday, 1 October 2010

Hat tip for this one to the otherwise deranged Keynesian accountant Richard Murphy.

I too have not paid a bribe, but hopefully the title of the post caught your eye. In fact, I haven't had an opportunity to do so, having worked outside Greece my entire working life. My last run-in with bribery was back in 2001 when I got my driver's licence - the instructor asked, just before my test began, whether I wanted to do a deal with the examiners. I didn't, and happily still passed. I now hear that the typical bribe for this is EUR300, which strikes me as a very lucrative business to be in.

The website I Paid A Bribe comes straight from Bangalore, India, a place that is, incredibly, even worse than Greece for such things. The idea is simple: if you've paid a bribe, blow the whistle on the relevant business or public authority anonymously. The clever bit is that the website refuses to record which individual you bribed as such (guessing correctly that this would open up the whistleblowing process to extreme abuse) but focuses on changing processes.

It also accepts reports from people who were asked to pay bribes but refused, people who didn't have to pay bribes where they had perhaps expected to and want to congratulate the authorities, and people who are currently being blackmailed for a bribe and are unhappy with this arrangement. All stories are posted online.

What is even more ingenuous is that the website posts the amount of bribes paid, which effectively makes it a price comparison website for corruption. I am particularly interested in this because, in cultures where bribery is entrenched it can take decades to eradicate through the "hearts and minds" approach. On the other hand, a price comparison website can drive the price of corruption "services" down, which is almost as good. With time, people will find that the returns do not justify the risk and just go back to the day job.

Note to all the Troktiko clones out there: set up a website like this and I promise I'll stop calling you and your readers semi-literate clowns.

I look forward to the way this paper will be received by the Greek media - if it is covered at all.

From the IMF's latest World Economic Outlook, I give you the aptly named "Will it hurt?", an essay on fiscal adjustment pain. I shall return later with a full analysis of what this is going to mean for Greece, but if you want to try your hand at the calculations, remember that Greece's fiscal adjustment amounts to 11% of GDP. So whatever figures you see in the report, multiply by 11 for a first estimate.

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LOL GREECE is a non-revenue blog intended as evidence-based and occasionally satirical commentary on the state of the Greek economy. The author, Emmanuel (Manos) Schizas, holds both Greek and British citizenship and is a permanent resident of the United Kingdom, where he is employed and duly taxed. The rest of his family (both parents and one brother) live in Athens.

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